Superannuation’s tax concessions are at their most powerful once a member moves into retirement phase after age 60. To see just how the pieces fit together — the 0% Earnings tax, tax-free pension payments, refundable franking credits and the minimum drawdown — it helps to follow a single fully worked example from start to finish. What follows is a hypothetical illustration built around a self-managed super fund with a $1 million balance. It is not a guarantee, a projection of any real fund, or a recommendation. Its purpose is to make the mechanics of SMSF retirement tax concrete, and to contrast the retirement-phase outcome with the roughly 15 per cent tax that would apply to the very same earnings in accumulation phase.

 

Meet the hypothetical fund

In this illustration, Susan is 62 and has permanently retired, meeting a full condition of release. She is the sole member of her SMSF, which holds $1,000,000 entirely in a retirement-phase account-based pension as at 1 July 2026. Her balance is comfortably within the general transfer balance cap, which was $2 million in 2025–26 and was indexed to $2.1 million from 1 July 2026, so her whole $1 million sits in the tax-free retirement phase.

Her portfolio is a simple mix of Australian shares and cash. For the year, assume it generates $40,000 in Investment earnings, made up of $28,000 in fully franked dividends plus $12,000 in interest and other income. All figures are illustrative.

 

Earnings taxed at 0%

Because every dollar in Susan’s fund supports a retirement-phase income stream, the fund’s earnings are Exempt Current Pension Income (ECPI) and taxed at 0%. The $40,000 of income and any capital gains on those Assets attract no tax within the fund.

In contrast, if the same $1 million were held in accumulation phase, the fund’s earnings would be taxed at 15%. On $40,000 of earnings that is $6,000 of tax in a single year — money that stays invested in the retirement-phase version. Over many years, the compounding difference between 0% and 15% on earnings is the core of the retirement-phase advantage.

 

Tax-free pension payments

Susan must draw a minimum pension. At 62 she is under 65, so her minimum is 4% of her 1 July balance: 4% of $1,000,000 is $40,000 for 2026–27. She could draw more if she wished, as an account-based pension has no maximum.

Because Susan is over 60 and her fund is a taxed fund, those pension payments are tax-free in her hands. The $40,000 is not included in her assessable income and does not need to be declared in her personal tax return. She receives the full amount with no personal tax deducted.

 

Franking credits refunded in cash

Susan’s $28,000 of fully franked dividends carry franking credits for company tax already paid. Grossing up at the 30% company rate, the franking credits attached are $28,000 multiplied by 30/70, or $12,000.

The fund declares this $12,000 as part of its income, but because it is taxed at 0% in retirement phase, there is no tax for the credits to offset. Under Australia’s Dividend Imputation system, excess franking credits are refundable, so the full $12,000 is paid back to the fund as cash after it lodges its annual return. In this illustration the fund therefore receives its dividends, its interest, and a $12,000 cash refund from the ATO on top.

 

Putting the numbers together

Drawing the threads of this hypothetical illustration together for 2026–27:

  • Fund earnings of $40,000 taxed at 0% — nil tax within the fund.
  • A minimum pension of $40,000 (4% of $1 million) paid to Susan tax-free.
  • A $12,000 franking Credit refund received by the fund in cash.
  • By contrast, the same $40,000 of earnings in accumulation phase would attract about $6,000 in fund tax, and franking credits would first offset that tax rather than being fully refunded.

The combined effect is a fund paying no tax on its earnings, a member receiving income with no personal tax, and a cash refund flowing back into the fund — a stark illustration of why retirement phase after 60 is so tax-effective. These figures are simplified and illustrative; a real fund’s outcome depends on its assets, franking levels, member ages and the rules in force.

 

What SMSF trustees need to know

Several conditions underpin this outcome. The member must have met a condition of release and be genuinely in retirement phase; the balance moved into retirement phase must respect the member’s personal transfer balance cap; and the minimum pension must be paid in full each year, in cash, or the 0% exemption for the year can be lost. It is worth noting that not everyone receives the full $2.1 million cap: only a member who had never started a retirement-phase income stream before 1 July 2026 gets the full amount, while those who commenced earlier have a personal cap set by proportional indexation. In Susan’s case the whole $1 million sits well inside her cap regardless. New contributions cannot be added to an existing pension, so growing the balance later involves an accumulation account and, potentially, commencing a further pension within the cap. Earnings on any accumulation balance would be taxed at 15%, which is why the split between accumulation and retirement phase matters so much to a fund’s overall tax position. The concessions are generous but rule-bound, and they reward careful administration and accurate record-keeping.

 

Key Takeaway

This hypothetical case study illustrates how an SMSF with $1 million in retirement phase after age 60 can pay 0% tax on its earnings, pay tax-free pension income to the member, and receive a full cash refund of franking credits — while the same earnings in accumulation phase would be taxed at around 15%. The outcome depends on meeting a condition of release, staying within the transfer balance cap (indexed to $2.1 million from 1 July 2026) and paying the minimum pension. It is a simplified illustration, not a guarantee or advice.